U.S. Economy Picked Up on Gain in Consumer Spending

The economy in the U.S. probably
expanded in the fourth quarter at the fastest pace of 2011 as
consumer spending picked up and companies rebuilt stockpiles,
economists said before a report today.

Gross domestic product, the value of all goods and services
produced, grew at a 3 percent annual pace after advancing 1.8
percent in the previous three months, according to the median
forecast of 79 economists surveyed by Bloomberg News. Household
purchases, which account for about 70 percent of the economy,
may have climbed 2.4 percent, the survey showed.

Americans returned to auto showrooms and malls last quarter
to replace aging cars and shop for holiday gifts as employment
and incomes grew and fuel prices retreated. Even so, Federal
Reserve officials said this week they are concerned about the
economy’s lack of vigor two years after the last recession
ended, prompting a pledge to keep interest rates low into 2014.

“Confidence (CONSSENT) picked up to the point where consumers were in
a better mood to spend but not splurge,” said Sal Guatieri, a
senior U.S. economist at BMO Capital Markets in Toronto. “This
is a marked improvement from the growth we saw in the past four
quarters. It’s a long slog, but we’re gradually improving.”

Due at 8:30 a.m. in Washington, the Commerce Department’s
GDP report marks the first of three for the quarter, with other
releases scheduled in February and March when more information
becomes available. Growth estimates ranged from 2.4 percent to
4.5 percent in the Bloomberg survey.

The growth rate as estimated would be the strongest since
the second quarter of 2010.

The projected rise in consumer spending would be the
biggest advance in a year and follow a 1.7 percent gain in the
third quarter.

Auto Sales

Auto sales underpinned demand. Cars and light trucks sold
at an average 13.4 million seasonally adjusted annualized rate
in the final three months of 2011, the best since April-June
2008, figures from researcher Autodata Corp. show.

The increase in household spending was made possible by job
growth. Employers took on 853,000 workers in the second half of
2011, compared with 787,000 in the first six months, and the
unemployment rate dropped to an almost three-year-low of 8.5
percent in December.

A rebound in stock prices may have also given Americans the
confidence to spend. The Standard & Poor’s 500 Index rose 11
percent in the final three months of 2011 after slumping 14
percent in the prior quarter, its worst decline since 2008.

To meet growing demand and replenish inventories,
businesses placed more orders with manufacturers last quarter,
prompting a December gain in production that was the biggest in
a year, Fed data show.

Retail Purchases

Consumers’ resilience, nonetheless, is still in question as
households try to rebuild savings that cooled throughout last
year. Spending at retailers lost momentum each month in the
fourth quarter, slowing from a 0.7 percent gain in October to a
0.1 percent increase last month. Merchants including Macy’s
Inc., Gap Inc. and Target Corp. cut prices to attract more
business during the holiday shopping season.

A deepening crisis in Europe may also hinder expansion. The
International Monetary Fund this week cut its forecast for
global growth in 2012 and said the euro crisis threatens to
hamper the world economy.

“We feel great about where we see retail sales in the
U.S., but certainly remain cautious as we look forward, given
the tentative nature of the overall economy and consumer
confidence,” John Olin, chief financial officer of Harley-
Davidson Inc., said during a Jan. 24 conference call. “We are
more concerned about retail sales in Europe, given the fact that
they may already be in recession or may slip into recession.”

Harley-Davidson Sales

The nation’s biggest motorcycle maker, based in Milwaukee,
said sales rose 12 percent in the U.S.

Fed officials said this week their benchmark interest rate
will stay low until at least late 2014 and they forecast
unemployment will “decline only gradually.”

A separate report at 9:55 a.m. today may show consumer
sentiment was the strongest in eight months in January,
bolstered by job gains. The Thomson Reuters/University of
Michigan final index of confidence for the month climbed to 74
from 69.9 at the end of December.